Paxful co-founder Artur Schaback pleaded guilty to the court yesterday, acknowledging that he failed to maintain an effective anti-money laundering (AML) program during the operation of Paxful, a Bitcoin P2P trading platform. According to a press release from the Department of Justice, Schaback could face a maximum sentence of five years in prison.
Established in 2015, Paxful is an old-fashioned Bitcoin P2P trading platform with over 9 million users worldwide. Its co-founder and former CTO, Artur Schaback, pleaded guilty yesterday, admitting that he failed to maintain an effective anti-money laundering (AML) program during the operation of Paxful from July 2015 to June 2019.
According to a press release from the U.S. Department of Justice, Schaback’s sentencing is scheduled for November 4th, and he could face a maximum sentence of five years in prison. He will also resign from the Paxful board of directors.
According to Schaback’s plea agreement, the government prosecutors have agreed to impose a $5 million fine on Schaback. He will repay the fine in three installments, with $1 million on the day of his guilty plea, $3 million before his sentencing, and the remaining $1 million within the next two years.
The charging document filed at the end of March stated that Schaback and a co-conspirator (referred to as Paxful’s CEO) failed to establish an effective anti-money laundering program within 90 days of starting their business, as required by the Bank Secrecy Act. Furthermore, during Schaback’s tenure from July 2015 to June 2019, Paxful did not implement a Know Your Customer (KYC) program, and Schaback even promoted Paxful as a “KYC-free trading platform” to customers.
The Department of Justice press release further stated that when a third party requested Paxful to provide an AML policy, Schaback and the co-conspirator provided a policy copied from another institution, knowing that it was not implemented in Paxful. The document also stated that the partners would make exceptions to the AML and KYC policies based on the transaction volume of Paxful customers and their relationship with Schaback or the co-conspirator.
Paxful temporarily ceased operations in April last year. According to previous reports, Paxful suddenly announced the suspension of its platform on April 4th last year. CEO Ray Youssef stated in the announcement that due to the departure of core employees and the increasingly stringent regulatory environment, they decided to close the platform.
At that time, Youssef and Schaback were accusing each other in order to gain control of the platform. These accusations included embezzlement of company funds, money laundering, and evasion of sanctions. It is speculated that Paxful’s announcement of the suspension of operations was related to the court dispute between the two parties.
However, Paxful soon announced the resumption of operations in May and appointed Roshan Dharia as the new CEO.
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